CITIZENS FINANCIAL GROUP INC/RI: A Comprehensive Review of Their 2024 Performance and Future Outlook

Welcome, investors! Let's dive into Citizens Financial Group's (CFG) latest annual report to understand their performance, financial health, and what lies ahead. We'll cut through the jargon to give you a clear picture of this major regional bank.

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I. Company Snapshot & 2024 Financial Highlights

Citizens Financial Group, a prominent U.S. bank, provides a full range of financial services, including consumer and commercial lending and wealth management. In 2024, the company achieved solid financial performance, growing its core business and maintaining healthy profitability despite an evolving economic landscape.

Here are the key takeaways from their 2024 results:

• Strong Profitability: Net Income rose to $2.3 billion in 2024, up from $2.1 billion in 2023.
• Revenue Growth: Total Revenue reached $8.0 billion in 2024, an increase from $7.5 billion in 2023, primarily driven by Net Interest Income.
• Robust Loan Expansion: The total loan portfolio grew by 4.86%, from $232.5 billion in 2023 to $243.8 billion in 2024.
• Healthy Capital Position: The bank maintained a strong Common Equity Tier 1 (CET1) ratio of 10.8% in 2024, comfortably above regulatory requirements.
• Consistent Shareholder Returns: Dividends per share increased to $1.72 in 2024, up from $1.68 in 2023.

II. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis (MD&A) offers a detailed look at the company's financial health and operational outcomes. It highlights key trends, significant events, and management's insights into what drove performance.

Revenue & Profitability: Citizens Financial Group achieved strong revenue growth, with total revenue climbing to $8.0 billion in 2024, a 6.7% increase from $7.5 billion in 2023. An expanding loan book and effective management of interest-earning assets primarily fueled this growth. Net Income also rose, reaching $2.3 billion in 2024, up 9.5% from $2.1 billion the prior year. This translated to diluted Earnings Per Share (EPS) of $5.75 in 2024, compared to $5.25 in 2023, demonstrating improved operational efficiency and a larger asset base.

Balance Sheet Strength & Financial Health: The bank maintains a robust balance sheet, supported by consistent growth in both loans and deposits.

• Loan Portfolio: The total loan book expanded significantly, from $232.5 billion in 2023 to $243.8 billion in 2024. This growth was broad-based across key segments:
  • Commercial loans increased from $90 billion to $95 billion.
  • Commercial real estate loans grew from $55 billion to $58 billion.
  • On the consumer side, residential mortgages rose from $37 billion to $38 billion.
  • Home equity loans increased from $14 billion to $14.5 billion.
  • Auto loans grew from $23 billion to $24 billion.
  • Student loans increased from $9 billion to $9.5 billion.
• Deposit Base: Citizens successfully grew its deposit base, a crucial funding source, from $200 billion in 2023 to $205 billion in 2024. This demonstrates strong customer loyalty and effective deposit gathering strategies.
• Capital Position: The bank's Common Equity Tier 1 (CET1) ratio, a key measure of financial strength, improved to 10.8% in 2024 from 10.5% in 2023, indicating a strong buffer against potential losses and supporting future growth.
• Retained Earnings: Retained earnings, the accumulation of profits, grew from $13 billion in 2023 to $14 billion in 2024. This signifies the bank's ability to reinvest in its business and strengthen its equity base.
• Accumulated Other Comprehensive Income (AOCI): This metric, which can fluctuate with market conditions, showed an improvement from a negative $2 billion in 2023 to -$1.5 billion in 2024. This positive shift primarily reflects a recovery in the valuation of certain investment securities.
• Funding and Liquidity: Beyond deposits, the bank maintains a diversified funding profile, including various forms of wholesale funding and long-term debt, to support its asset growth and liquidity. Management actively manages its debt maturity profile and cost of funds. The bank also holds robust liquidity reserves, such as cash and highly liquid securities, to meet its obligations and withstand potential market disruptions, adhering to internal targets and regulatory requirements.

Shareholder Returns: Citizens continued its commitment to shareholders, increasing its annual dividend per share to $1.72 in 2024 from $1.68 in 2023. This reflects confidence in its ongoing profitability and capital generation.

III. Asset Quality: A Closer Look

While Citizens achieved robust loan growth, investors should closely monitor asset quality. The bank observed a slight uptick in nonaccrual and past-due loans across several categories:

• Nonaccrual Commercial Loans: Increased from $80 million in 2023 to $90 million in 2024.
• Nonaccrual Commercial Real Estate Loans: Rose from $110 million to $130 million.
• Seriously Past Due Consumer Loans (90+ days):
  • Residential mortgages increased from $80 million to $90 million.
  • Similar increases were observed in home equity, auto, student, and other retail loan categories.

While these increases represent a trend to watch, they still constitute a relatively small percentage of the bank's total $243.8 billion loan portfolio. To proactively manage these risks, Citizens increased its provision for credit losses from $350 million in 2023 to $420 million in 2024, reflecting a more cautious outlook on potential future defaults.

IV. Strategic Priorities & Future Outlook

Citizens Financial Group focuses its strategy on several key areas to drive future growth and enhance shareholder value:

• Digital Transformation: Investing heavily in technology to improve customer experience, streamline operations, and enhance digital banking capabilities.
• Targeted Growth: Expanding market share in key metropolitan areas and specific business segments, leveraging its strong regional presence.
• Diversification of Revenue: Continuing to grow non-interest income streams, such as wealth management and fee-based services, to reduce reliance on traditional lending.
• Operational Efficiency: Implementing initiatives to optimize costs and improve productivity across the organization.
• Customer-Centric Approach: Enhancing personalized service and product offerings to deepen customer relationships.

Looking ahead to 2025, Citizens anticipates a moderately growing economy, which could lead to continued loan and deposit growth. However, the bank remains vigilant about interest rate fluctuations, inflationary pressures, and geopolitical uncertainties that might impact its performance.

V. Competitive Position

Citizens Financial Group operates in a highly competitive financial services industry. It faces competition from a diverse range of institutions, including large national and international banks, regional and community banks, credit unions, and non-bank financial service providers like fintech companies.

The bank's competitive strengths typically include:

• Strong Regional Presence: A well-established branch network and brand recognition in its core operating markets.
• Diversified Product and Service Offerings: A broad suite of consumer, commercial, and wealth management products allows it to serve a wide customer base.
• Customer Relationships: A focus on building long-term relationships through personalized service and tailored solutions.
• Digital Capabilities: Ongoing investments in technology to enhance digital banking platforms and customer experience.

Citizens competes primarily on product innovation, pricing, customer service, convenience, and brand reputation. Its strategy involves leveraging its strong regional footprint, expanding digital capabilities, and deepening customer relationships to differentiate itself and capture market share in its target segments.

VI. Key Risks to Consider

Investing in any financial institution carries inherent risks. For Citizens Financial Group, investors should consider:

• Credit Risk: The primary risk, as recent increases in nonaccrual and past-due loans demonstrate, especially in a potentially softening economic environment.
• Interest Rate Risk: Changes in interest rates can impact the bank's Net Interest Income, affecting profitability.
• Economic Downturn: A significant economic slowdown could lead to higher loan defaults, reduced loan demand, and lower asset valuations.
• Regulatory & Compliance Risk: The banking sector is heavily regulated, and new rules or increased scrutiny could impact operations and profitability.
• Competition: Intense competition from traditional banks, credit unions, and emerging fintech companies for both customers and talent.
• Cybersecurity Risk: The ongoing threat of cyberattacks poses a risk to customer data, financial systems, and reputation.

Conclusion

Citizens Financial Group delivered a strong 2024, marked by impressive loan and revenue growth, solid profitability, and a healthy capital position. While the slight increase in nonaccrual and past-due loans requires close monitoring, the bank's proactive provisioning and strategic focus on digital transformation and diversified growth position it well for the future. Investors should weigh these strengths against the banking sector's inherent risks and the broader economic outlook when considering CFG.